SEBI has made it compulsory for retail investors to open a demat account to invest in the stock market. Apart from trading in futures and options, every other type of financial security including shares, debenture, bonds, mutual funds, insurance etc. must be held in electronic form. Demat derived from dematerialisation, is intended to make holding, tracking and monitoring of financial market securities convenient for investors. A Demat account is opened through a DP or Depository Participant such as a bank, stockbroker, online trading platform etc. Depending on the DP you choose, charges while opening a Demat Account will vary. It is important to know what type of charges are levied by DPs before opening a Demat account.
Account opening charges vary from one service provider to the next. Some banks offer zero account opening charges whereas online trading platforms and brokerage firms do charge a small amount as an account opening fee.
While Demat accounts don’t have a minimum balance requirement they do have an Annual Maintenance Charge that ranges from INR 200 - INR 1000 depending on the DP you choose to open your Demat account with. Demat account charges also vary basis the type of Demat account you choose to open with the DP. BSDA or Basic Service Demat Accounts waive AMC entirely for custody value of less than INR 50,000 in securities. For values ranging from INR 50,000 - 2,00,000 the AMC is INR 100. For securities exceeding INR 2,00,000 in value the BSDA automatically gets treated as a Full Service Demat Account. A lot of DPs offer to waive AMC for the first year but it is a one time offer and does not apply after the first year.
Brokerage fee or transaction fee vary depending on the DP you choose. This means every time a security enters or leaves your account a small brokerage fee is levied by the DP. The transaction value and the type of security being transacted determines the brokerage fee. The brokerage fee is declared by the DP beforehand as part of their terms and conditions presented to the investor at the time of opening the account.
Demat charges are a nominal fee for converting physical equity or share certificates to electronic form. Different DPs charge different rates for the conversion.
To keep your account safe the DP charges a small amount per month ranging from INR 0.5 - 1 per security as custodian or safety fee.
An online demat account is a safe, easy and low-cost way of investing in the stock market. If you are a small investor, it is advised that you compare Demat charges and fees across DPs before opening a Demat account.
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